Posts about vc

I’m going to try something: linking here to things I’m writing on Google+, because the conversation there tends to be lively and quick and because I want to keep a record of some of those interesting conversations here before they scroll down into oblivion. So…

* The Associated Press gets into the CIA’s social-media analysis operation, which only makes me think that we in journalism should have just such operations ourselves.

* Adding my experience with Reid Hoffman to the deserved attention he got today in The New York Times: Reid as an open human API.

Question for my book and for a conversation I’m going to have about it this week: How do you think venture capital could operate in more of a Googley/web 2.0/networked way? VCs like Fred Wilson have already made the industry far more open than it used to be with their blogs, which have also extended their networks. So what’s next? What are new ways you’d like to see to invest in and start companies? (As always, thanks!)

The answer’s very simple. Because every company that had the potential to be economically revolutionary over the last five years sold out long before it ever had the chance to revolutionize anything economically.

Think about that for a second. Every single one: Myspace, Skype, Last.fm, del.icio.us, Right Media, the works. All sold out to behemoths who are destroying, with Kafkaesque precision, every ounce of radical innovation within them.

Let’s replay the Google story. Google, despite serious interest from Microsoft and Yahoo – what must have seemed like lucrative interest at the time – didn’t sell out. Google might simply have been nothing but Yahoo’s or MSN’s search box.

Why isn’t it? Because Google had a deeply felt sense of purpose: a conviction to change the world for the better. Because it did, it held on and revolutionized the advertising value chain – and, in turn, capital markets gave Google an exuberant welcome.

See the point? If all Larry, Sergey, and Google’s investors had wanted to do was to sell out fast to the highest bidder, they could have done so at any time. But they didn’t: they chose to revolutionize something that sucked – and so a tsunami of new value was unlocked. That’s how Google was made.

Now, I agree with Fred. Equity capital markets are myopic, beancounterly, and soulless. But it’s not venture’s job to fix those problems. The real problem is internal: structural inertia and risk-aversion. . . .

The dynamics of old boy’s clubs are almost deterministically predictable: they fight tooth and nail against risk, against the radical, against any kind of change to the status quo. They’re great at “monetization” – cutting deals – but the last thing old boy’s clubs are good at, unfortunately, is sticking up, come hell or high water, for innovation. From music, to publishing, to food, to autos, the outcome of locked-down boardrooms has been innovation stifled and suffocated. . . .

I’m delighted for the Feedburner team that they’ve been acquired by Google for a reported $100 million. It’s hard to think of a more upstanding company in the blog and RSS world than Feedburner. They have unparalleled customer service; they have always been forthright and transparent; they are incredibly responsive; and they’re just nice guys. They also have vision. When Feedburner started, I’ll admit that I didn’t understand why I needed them. But I finally got it and I have had nothing but pleasant encounters with their management and their service. Congratulations. (Investor Fred Wilson’s take here.)

Rafat Ali reports that Staci Kramer is on wi-fi at the hospital. She never stops! (Here’s hoping that all goes smoothly for Staci there and that she gives herself a break and stays off line.)

Speaking of Rafat, he’s pissed about David’ Carr’s spun piece about Denton, Inc. and the PaidContent mixer. I, too, made bubble gags after the event but I agree that the bubbling has nothing to do with blogs (or with PaidContent). What I noted was the guys with startups pitching anybody who would or wouldn’t listen. That’s what was deja vu for me.

Umair Haque is suffering a big strategic crush on Fox, In this post, he takes out after the first, early investment relationships from Denuo, the Publicis think tank. I won’t comment on that because I have loads of conflict of interest (friendships and working relationships with Denuo and its investments). I want to address what Umair says about Fox’s investment strategy and the lessons there. One disagrees with Umair at one’s own peril; he’s a one-man debate squad. But I do want to poke at some of his assumptions.

Like many, Umair is enamored of Fox’s strategy — led by MySpace — because Murdoch et al apparently understand the value of relationships. I heartily agree so far. Understanding the value of relationships — over distribution or content — is, I believe, a key insight into the future of the media business. But Umair contrasts this with Denou’s investment in infrastructure, which he dismisses. He says:

Fox’s acquisition thesis is a bit more complicated – but predicated on a much deeper understanding of the new media value chain. Fox invests in domains which are hypersocial (discontinuous shifts in social connectivity) or hypercultural (discontinuous shifts in cultural specificity): sports, karaoke, music.

Further, Fox invests at the edge of the new value chain: at the interface with consumers.

That’s the point I want to probe. If they’re still “consumers,” is this really the edge? I say the edge is all about control by creators: That is, I control my own space, this space at the edge, Buzzmachine; I am subject to no one’s rules; I hold responsibility; I reap the benefits, if any; I have relationships as a result of having this presence online; this is mine, all mine; thus I can also relinquish control and, for example, put out full text on RSS and I can realize that the real conversation is not just the one in the comments but the one distributed across others’ sites. That is qualitatively different from a community destination: You go there, you benefit from their infrastructure but you are subject to their rules, you live in someone else’s space. Now I’m not denying the incredible power of MySpace. But I am wondering whether it is really fully at the edge — yet. In fact, I questioned here whether there is a disadvantage in trying to own a community — because then you become responsible for the community’s actions and its worst (i.e., the molester’s home page). And so I wonder, in turn, whether the real relationship play in the future is not to try to own community but to enable it. And enabling is sometimes known as infrastructure.

I’m not trying to get into the specifics of Fox v. Denuo investment strategies; I don’t know enough about either. Instead, I’m trying to figure out this question of owning and controlling communities vs. enabling them and how that will play out.

Umair continues:

… Fox understands the deep economics of new media. Value capture in the new media value chain is a function of market power. And market power is a function of attention. And attention is allocated most efficiently by markets, networks and communities.

Consider MySpace. MySpace’s success is driven by it’s proprietary music and now video player – the deepest social widget in the new media world. It is what lets fans connect to bands they might love – it is what allocates their attention hyperefficiently (more efficiently than Top 40 charts, corporatized radio robo-DJs, or even next-gen corporobots, like Pitchfork Media).

It’s unlikely that MySpace will ever use the kind of generic “infrastructure” that Denuo’s investing in: because doing so would rob it of the very source of it’s advantage.

Again, I’m not addressing the specific investment contrast; one could argue that Brightcove [full disclosure: on whose board of advisors I sit] is also a proprietary player except, like YouTube, it can be distributed. And let’s not forget the symbiotic relationship of MySpace and YouTube. Let’s also return to the CNN example: If it had put out that Jon Stewart segment for all to distribute — with an ad attached — it would have audience and ad avails in the many millions instead of the few hundreds of thousands. I think the best player is the one I control. See TiVo.

I think the real winners in the future will be the ones who craft strategies that find advantage in giving up control. You won’t win by technology (and, yes, infrastructure alone) because there can always be better technology. You can’t win forever by trying to own a closed structure because you’re then always vulnerable to open competitors (enabled by new, open standards). You need to figure out how to win by enabling control at the edge, not in your center.

Vinod Khosla — one of the VCs from the bubble era and bubble neighborhood I think is still worth listening to… carefully — has started his new, smaller venture firm and he put up some of his presentations. I’d love to have heard his Web 2.0 spiel (download the powerpoint here). Two important slides therein: